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A self-help guide to buying the first home

It’s the imagine many Australians to purchase their own home. As far as big life goals, for many individuals it’s up there with getting married and/or expecting. As such, it needs a considerable amount of thought. And, as much first house buyers will attest, they wish they’d started saving yesterday. But how much deposit can you actually need to acquire that dream home, and what’s a good amount to borrow from your bank? Let’s examine some of the big questions.
Related topics

  • Qld First home buyers grant qualifications
  • Stamp duty for first home buyers
  • How much deposit do I need to buy a house?
  • Tips on saving for a deposit
  • Using superannuation as a deposit
  • Buy vs rent
  • How much will I need for a house deposit?

In Australia, most banks and lenders will require you to have saved 10% of the property’s value before you decide to qualify for any home loan. This means should you’re eyeing a pad listed for $600,000, you’re going to need a deposit of at least $60,000. The more you might have, the better off you’ll be - for the number of reasons, which we look at below. First things first, decide that you want to buy and shop around on the exact property market. Speak to whats my property worth or agents about the amount properties sell for in your community you are looking to buy and workout if you can afford to buy there.
What is lenders mortgage insurance?
Most lenders require you to definitely have a first deposit of 20% if you would like avoid paying Lenders Mortgage Insurance (LMI). Lenders take out LMI to guard themselves if your borrower defaults around the loan which is generally paid through the lender if their Loan to Value Ratio (LVR) is 80% or older. The cost of LMI usually is dependent upon your LVR, the amount of money you borrow along with the lender however in the example above you need to expect to pay for somewhere between $10,000 and $15,000.
What is my loan-to-value ratio?
The more deposit you’ve got saved, the lower your LVR will likely be. The LVR is exercised by dividing your loan amount with the value in the home you wish to buy. Anything over 80% automatically puts you in Lenders Mortgage Insurance (LMI) territory. For example, if you need it a $600,000 home with a 10% deposit your LVR will likely be 90%. If you have a first deposit of $150,000 for a similar home, the borrowed funds amount will drop to $450,000 which in place drops the LVR to 75% and means there is absolutely no LMI payable.
The lessen your LVR (under 80%), the larger you are valued within the eye from the lender, meaning you might be eligible for any greater selection of home loan rates. The lower the interest rate you pay on your mortgage loan, the less interest you’ll pay off to the lender over time.
What if I only use a 5% deposit?
The smaller your deposit, the greater rigid the regulations are on it, however, some lenders will accept in initial deposit of only 5%. If you only have a 5% deposit, remember that this needs to comprise “genuine” savings. Genuine savings are savings you’ve got in the bank that show up on your bank statement - not “oh but my friend owes me $10,000 which I’m getting everyday now” savings. Money from a parent or 3rd party can also be put towards your deposit, but this can be referred to as a gift in lieu of genuine savings.
If you’re buying a good investment property, lenders tend to be more strict, with many requiring a deposit of at least 10% in the property’s value.
Read: Can you get yourself a home loan having a five per cent deposit?
Can I obtain a property without any deposit?
If you haven’t saved a deposit at all - not really a teeny tiny one (seriously, did I really spend that much on New Year’s Eve tickets inside nineties?!), you’ll should qualify for what’s referred to as a guarantor loan. A guarantor can be quite a family member that is legally in charge of paying back the entire loan if you possibly could’t - as well as any fees, charges and interest.
You can read more about guarantor loans here.
How much can I borrow?
Once you’ve solved how much deposit you have, you can begin working on the amount you can borrow. The amount you can borrow is determined by a number of factors, in addition to your income (and whether you’re working full time, part time or casually), marital status, the volume of dependents you might have, your credit history and expenses.
Total Finance and Mortgages selection of calculators are made to help you discover your borrowing power, the funds required to get a certain home and the cost of other items like stamp duty.
Let’s say you’re a single person earning $80,000 12 months. You hold a credit card using a $5,000 limit, and your living expenses add up to around $1600 a month. uno’s mortgage loan borrowing calculator will estimate your borrowing capacity somewhere within $400,000 and $500,000.
Now let’s say you’re a few with two children, which has a combined salary of $200,000 and bills of $2500 per month. You also have a credit card with a limit of $15,000. Your borrowing capacity now is somewhere between $1,000,000 and $1,250,000.
Have a go with the Total finance and Mortgage calculators or speak to one of our qualified mortgage brokers to find out the amount you can borrow.
How much should I borrow?
Of course, no one wants to overstretch themselves and borrow a lot of from the bank. You’ll only spend your entire life struggling to pay for off debt. For this reason, it’s equally as important to look at the amount you should borrow.
As well because amount you’ll have to save on your deposit, you’ll also need to factor within the other costs that accompany buying a house, including stamp duty, council and water rates, and then for any repairs you may need to carry out after you move in. It’s smart to save because of these things with your deposit.
When factoring in how much you can afford to borrow through the bank, you should also understand that interest rates may rise, as well as your repayments should go up. You should also think of future plans and aspirations. Do you plan to examine in a few year’s serious amounts of quit your task - or work part-time? Do you plan to retire at 60? 50? 40?! Do you see children within your future? Are your parents likely to need care and assistance as they age?
While these items cannot be put in a calculator (yet), they should be taken into account. If you don’t desire to find yourself thousands of dollars in debt in three decades time, set your limit and don’t over commit.
How much is stamp duty?
One with the major hurdles to buying property for first home buyers can be the high expense of stamp duty. On top in the stamp duty fee itself, there’s also the transfer fee along with a mortgage registration fee - although these are generally only one or two of hundred dollars instead of the thousands you’ll pay in stamp duty.
Thankfully, there are several stamp duty concessions for first homeowners in different states.
Try Total Finance and Mortgage Stamp duty calculator to test for first home buyers to find out in the event you’re eligible.
Can I get the First Home Owner Grant?
The criteria for each and every grant along with the value from the grant is different from state to state, although the main eligibility requirements are largely a similar: you have to be 18, an Australian citizen or permanent resident, so you mustn’t have owned property in Australia before.
For a breakdown of key criteria in each state read: Do I be entitled to the first home buyer grant?
The pre-approval process
You’ve got pre-approval for your home loan. Congratulations! You must be feeling pretty excited. Now it’s time for it to find that ideal home.
While one does, here are some tips to be sure you keep that pre-approval.
Pre-approval doesn’t include assessment of if the property is acceptable to the lender - because the property most likely hasn’t been found yet. This is why one of the conditions inside the pre-approval will likely be “subject with a satisfactory valuation”.
Avoid these property types
Before you are going house hunting, you must know there are specific types of properties that will not be acceptable for some lenders, such as:
Small apartments or particular apartment blocks deemed harder to sell
Hobby farms
Properties in suburbs which can be deemed ‘high risk’ by way of a lender. A suburb is deemed risky when there are tons of high rise developments, by way of example. In areas with good density there is a risk the oversupply will drive the costs down in the event the market crashes. Lenders must make sure that if they should sell the protection (the house purchased and held from the bank to sell in case you can’t pay the credit back) to repay their debt they’re going to get the value in the debt back.
A property with large power lines all-around it that may affect the resale value.
A property that is in poor repair
Don’t go changin’… jobs
Once you’ve gained pre-approval, now’s not the time for it to go changing jobs. If your circumstances do change between gaining pre-approval and finding a home you’ll need to advise uno.
Please remember the following changes within your personal or financial circumstances can mean you happen to be no longer able to afford the repayments and the lender might not exactly formally approve your loan.

Examples of changes that could create an issue are:

  1. Changing jobs
  2. Going part time or becoming a contractor
  3. Increasing your number of dependants
  4. Getting a credit card or personal loan
  5. Spending your deposit on an emergency expense

The lender discovering loans or bank cards you did not disclose
Interest rate changes. If the RBA increases rates while you are still house hunting it might affect the amount you are able to borrow
Formal pre-approvals can negatively affect your credit rating so beware of obtaining multiple pre-approvals with assorted lenders.

Hey big spender

Don’t attempt to spend a lot more than the amount you are already pre-approved for. If you lock yourself right into a binding contract before seeking legal advice it could possibly cost you your deposit if you are not able to obtain formal approval to get a higher loan.
Understanding home loans
Once you’ve saved your deposit and decided where you should buy, you’ll should apply for a home loan. The house loan process may be complicated, which is why we operate Total Fiance and Mortgage - to accept the hassle from applying for the home loan.